Wind alleges Telus breached foreign investment laws

Telus Corp., one of Canada’s biggest and most established telecom operators, faces the surprise task of having to prove it is not offside of the country’s foreign-investment laws.

A complaint filed this week by competitor Wind Mobile alleges nearly half of the Vancouver-based company’s voting shares are held by foreigners — a sizable violation of the Telecom Act, which forbids “non-Canadians” from owning too much of an Internet, phone or wireless provider.

The claim, according to one regulatory source, “has merit.”

“It is not a frivolous application” said the person, who has direct knowledge of the thinking at the Canadian Radio-television and Telecommunications Commission, the industry’s watchdog. “They’ve done their homework.”

The commission has given Telus a standard 30-day window to file a response, after which it will determine whether a public review is warranted.

In its filing, Globalive Wireless Management Corp., the parent entity of Wind, says a failed plan by Telus this spring to collapse its voting and non-voting shares into one pool pushed the carrier over the permissible level. Globalive is claiming 48% of Telus’ common shares are held by non-Canadians, a level which would breach the 33.3% allowed in companies that own telecom assets.

Telus warned in March that it faced the prospect foreign ownership levels would exceed the maximum allowed under law. At the time, U.S. hedge fund Mason Capital Management LLC was acquiring blocks of Telus shares in its successful attempt to scuttle the share plan. Through the purchases, Mason Capital alone amassed an equity stake of nearly 19%.

On Thursday, however, Telus rejected the Globalive claim, saying its internal controls had effectively kept the company share structure within permissible thresholds.

“Globalive’s allegations are completely unfounded and misleading,” Shawn Hall, a Telus spokesman said in an emailed statement.

The parent of Wind — which began competing in late 2009 against Telus and the country’s other incumbent mobile operators, Rogers Communications Inc. and Bell Mobility — is relying on a report it commissioned from Broadridge Financial Solutions Inc.

Broadridge’s methodology however, is faulty, Telus’ Mr. Hall said. “The report used by Globalive to support its allegation relies on the postal or zip code of an account rather than actual residency, and is not intended to be used to determine foreign ownership compliance.

“The shares covered in the reports are materially different than those on the Telus share register maintained by our transfer agent,” he said.

For their part, Globalive officials say their intent is to have the rules clarified by the commission.

“In order to ensure a fair and level playing field, it is important that complex structures and compliance mechanisms are well understood by all potential and actual participants in the telecom and broadcast industries,” Simon Lockie, chief regulatory officer for the upstart carrier said.

Globalive has been plagued by regulatory and legal challenges since launch, in large part as result of challenges from Telus.

The operator spearheaded a joint incumbent attack on Wind’s controversial ownership structure in rare public proceedings three years ago. Telus, Rogers and Bell each claimed financial backing from foreign carrier Orascom tipped the startup offside with domestic law.

Telus also led a subsequent legal assault, filing suit against the government’s decision to allow Wind to launch, a process only recently concluded with a decision from the Supreme Court of Canada to not hear the matter.